I was shocked when I read this article by Intuit that said over 65% of Americans had no idea what their budget was. What?!? A budget is really a way of thinking of a spending plan. If you don’t have a plan for your money, you won’t be able to make decisions like what vacation can you go on this year, can you send your kids to private school, when will I be able to retire, or should you agree to go out to dinner with friends this weekend.
A budget helps you make sure you always have money for the things you need – and want – to do.
When starting with a budget for your family, my best advice is to choose a system that will work with your lifestyle so you use it consistently. You might set up a paper budget planner like the ones I have in my shop or one you create on your own, a cash envelope system, or a mobile app.
Whichever you choose the elements and steps will be the same.
Your income should be pretty easy to understand, but this is essentially any money coming into your household. It can be from employment or sources like child support, alimony, maybe rental income if you own properties somewhere, and so on. If you have a side hustle, that goes in this category too.
Maybe you or your spouse have a job that varies in income each month, something like sales or food service where your commission or hours are uncertain month to month. It can be a little trickier to figure out a budget, but it can be done.
Fixed expenses are those with fixed or set amounts each month, so they don’t change month to month. Your mortgage or rent, a car payment, a student loan payment, insurance payments, tuition if your kids are in school, subscriptions to services like Netflix, and so on.
As the name implies, variable expenses – you guessed it! – vary each month. So you still have to pay them, but the exact amount isn’t the same each month. Things like your utility bills or maybe gas for your car or groceries fall into this category. You may be able to have a good estimation of what they might be, but they aren’t fixed like the category above.
Ah – discretionary expenses! So this one is maybe the hardest one for those wondering how should a beginner budget. Because this category is left up to your decision. It can be things like entertainment, meals out at restaurants, personal care like getting your nails done at the salon, impulse purchases on magazines or home decor, donations to causes, or sometimes even gifts for friends.
Sometimes beginning budgeters think they need to cut out all discretionary spending, but this can leave them feeling deprived and resentful about tracking their money. So I usually recommend an approach like accounting for some discretionary spending each week.
Having a goal is so important in any area of life, but especially with budgets. Knowing what you want to achieve with your money whether it’s paying off debt, saving for a vacation, buying an investment property, or planning for retirement gives you something to work toward.